2. History
• The history of Lego spans almost 100 years of the existence of a toy
that grew from small wooden playthings in the early 20th century
into the center of a vast market of plastic building bricks that
dominated the world markets for decades. It is one of the oldest
plastic toys in the world. Its manufacturing was started
in Denmark, but was eventually replaced by factories throughout
the world. Today it is one of the most successful toys and has
remained an iconic brand with a loyal and continuing following.
Moved around the world around 1934. Is in the 'Top Ten Toys'
around the world. Has been the most popular toy (not to
mention, the most successful) and continues to grow today. The
traditional date for the first Lego blocks is 1947, and the toys have
continued to be produced with little interruption since around that
time.
3. • Successful brand, Lego, which was conceptualized by Ole Kirk
Christiansen, a carpenter from Denmark, who began making wooden toys
in 1932, has, in the past, had to pass several litmus tests to prove that it
is, indisputably, one of the finest in the history of this business.
• To understand this, one needs to first get a fair idea about what the term
“product life cycle” means. Loosely put, it is the broad assessment of how
a product fares in the market at different points in time after its
introduction, and the steps taken accordingly to maintain its relevance and
profitability.
4. • For one thing, most products never make it past the introduction stage;
they die an early death. Second, some products (like some people) avoid
premature demise by reinventing themselves. This is what the LEGO
Group did.
• The company had been reinventing itself during the fifteen-year period of
1990 to 2005, launching new products in an effort to recover its customer
base and overcome a series of financial crises. Unfortunately, this strategy
was unsuccessful.
• “new products have even cannibalized on the sales of LEGO Company’s
core products and thus eroded earnings.”
• Also take-over threat by Mattel Toy Company forced its CEO into action.
6. Introduction stage
• After its introduction in 1949, which is the first stage in any product’s life cycle, the
product, the bricks in this case, entered into the second phase, i.e. growth, which
witnessed success and occupation of a large market share. This stage also saw the
introduction of other products in the product line.
• In 1962, the company added the wheel to its collection, facilitating the first Lego
train in 1966. In the late 60’s, Duplo, a series of larger bricks for younger children
was introduced.
• In 1968, Lego's first theme park, Legoland, was set up in the Billund
(Denmark), the city that is home to the company’s headquarters. The seventies
saw the invention of the Lego Technic series, which allowed complex constructions
by introducing beams, gears, gearboxes and several mini-figures.
• At this stage, most companies invest in advertising to make consumers aware of a
product. If it faces only limited competition, it might use a skimming-pricing
approach. Typically, because it will sell only a relatively small quantity of the
product, it will distribute through just a few channels. Because sales are low while
advertising and other costs are high, the company tends to lose money during this
stage.
7. Growth stage
• In 1962, the company added the wheel to its collection, facilitating
the first Lego train in 1966. In the late 60’s, Duplo, a series of larger
bricks for younger children was introduced.
• In 1968, Lego's first theme park, Legoland, was set up in the Billund
(Denmark), the city that is home to the company’s headquarters.
The seventies saw the invention of the Lego Technic series, which
allowed complex constructions by introducing
beams, gears, gearboxes and several mini-figures.
• At this stage, most companies invest in advertising to make
consumers aware of a product. Typically, because it will sell only a
relatively small quantity of the product, it will distribute through
just a few channels. Because sales are low while advertising and
other costs are high, the company tends to lose money during this
stage.
8. Maturity stage
• So far so good. However, after nearly five decades of market
domination, trouble struck in the late 1990s. In 1998, the company
posted its first ever loss, which was mainly a consequence of
increasing competition from video games and changing buying
behavior. In marketing terms, these were signs of the product entering
the maturity phase, where in it was being challenged and its market
share had stopped increasing.
• The year, which saw a loss of 282 million kroner, was the beginning of
a six-year period of distress, which ended in 2004 that saw an
unprecedented loss of 1.93 billion kroner.
• Lego turned flamboyant. Nevertheless, the step was to boomerang as
the managers and designers were to lose sight of the business’s core
proficiency that rested in the simple looking-yet ingenuously
formulated concept of building bricks.
• The highlights of the process included the introduction of the Galidor
series, which majorly focused around action heroes, devoid of the
basic selling point of Lego’s previous products: creativity and
imagination. Being a cartoon-series oriented product line, the concept
left little room for an open-ended experience, something which one
associated with Lego.
9. • Duplo was replaced by Lego Explore, which led to a perception that the blocks were no
longer large enough for young kids aged between 18 months-5 years. Designs started getting
intricately complex.
• Giving a free hand to designers spelled doom as the view point of the eventual
consumers, the children, was ignored. In the words of CEO Jorgen Vig Knudstorp, Lego had
become arrogant and had stopped listening.
• By 2004, the number of components had jumped from 7,000 in 1997 to 12, 400. As a
result, revenues from sales of products aimed at pre-school students slumped by 37% in
2002. As per LEGO's executive vice-president for markets and products, Mads Nipper, the
LEGO City line, once among the largest pieces of LEGO's business started accounting for a
meager 3 percent of the company's revenue, down from around 13 percent in 1999, and all
this because of badly implemented steps in the garb of creativity.
• If this was not enough, the management’s decision of Lego’s disastrous foray into other
unrelated ventures in order to position it as a lifestyle brand further compounded problems.
The idea of entering into various segments including clothes, watches, video games and
diversifying operations in the area of amusement parks only diluted the brand.
• Besides, product lines created in association with putative movie series like Harry
Potter, Batman and Indiana Jones were, although lucrative, turning out to be quite
fluctuating in their earnings. For instance, what came as an interesting observation was the
fact that the Harry Potter series did well during the period of a Harry Potter movie release.
10. THE TURN AROUND: HALTING THE DECLINE
• As a result of these miscalculated steps, by 2004, American toy making giant
Mattel was being tipped to take over the reins of this ailing, family-owned
business. The containment of this unprecedented phase of decline definitely
needed desperate measures, for the management had the task of erecting what
was once a giant in the business from the verge of bankruptcy into a respectable
position, to say the least.
• Come March 2004, and a resurrection plan was put into execution. Taking note of
the situation, Knudtorp brought the matter under his direct supervision, starting
off with a visit to Virginia for BrickFest, the annual convention for adult
fans of Lego (AFOL), which was followed by discussions with old colleagues
at the Massachusetts Institute of Technology (where he studied for a PhD
in business and economics), who reiterated Lego’s ingenuity in shaping a
child’s mind. The fact that the trio of Larry Page, Sergey Brin and Eric
Schmidt (founders and CEO of Google respectively) expressed their
fondness for Lego in an interview to Time Magazine gave Knudstorp the
impression that the concept of the product per se had not lost its relevance
and appeal. It was, in fact, an over stretched gamut of activities that had
diluted the brand’s equity.
11. • Nevertheless, the actual problem lay in the basic thinking of the organization. What had been an
integral part of the mindset of its management, was now coming back to haunt the company. As
Knudstorp put it, instead of aiming at nurturing children, minting money for the company had to
be engraved in the minds of the employees as the sole goal. “Profit”, which was till then a bad
word in the Lego dictionary, had to be inculcated in the employees’ mission statement. Being a
plan to change the fundamental vision with which the veteran toy maker had operated, it had to
be a meticulously planned affair.
• Performance-based incentives were introduced, ensuring that research and development
period for products almost halved. Employees were asked to shed their high-minded and elite
thinking, as a result of which the “Star Wars” line, which had caused dissent amongst the
company’s ranks on the pretext of war figures setting a wrong precedent, was approved, and
later turned out to do wonders for the company. In a nutshell, the company’s
management, departing from its founder’s earlier vision of being a mere educational concept
and a paradigm of quality, was now running it as yet another corporate house, aimed at raking
in profits.
• Treading a successfully tested path, Duplo was re-launched. Other tough decisions included
simplifying the management fabric, downsizing the number of employees, shifting operations to
other profitable locations like Mexico and Czech Republic, selling off unnecessary assets and
curtailing operations in other unrelated fields, in order to focus entirely on the core business.
The last was proven when stakes in the four theme parks (LEGOLAND) were sold off and the
task of developing video games was outsourced.
• Designs were simplified, and the number of components was slashed down to 3, 000. Their
wings were clipped, and they were asked to fiddle around with old and tested ideas. Every new
product line was first put to test with its costs calculated much in advance and was then put to a
vote, which in itself was quite difficult to pass. Inputs were taken from members of every
department and every minute modality was worked out to benefit the company’s performance.
12. • RESULTS PROVED EFFECTIVE
• Undoubtedly, the failure of a solution that included stern steps like
the aforementioned would have only meant doom for the
company, but things turned out the other way round. Sales started
picking up, and confidence was regained.
• In August 2006, Lego reported pre-tax profits of 238 million kroner
for the first half of the year, in contrast to a loss of 202 million
kroner for the same period in 2005. Sales had gone up by 19%. By
2008, owing to simplification in designs, the City line reclaimed the
lost glory of being one of LEGO's superstars, accounting for nearly
one-fifth of the company's revenue. In the same year, in spite of the
recession, Lego registered a jump of profits by 32 per cent.
Recently, for 2009, profit before tax increased by 55.9 per cent to
2,887 million kroner against 1,852 kroner million in 2008
13. BRIGHT FUTURE AHEAD
• Over the last seven decades, Lego’s quality has been exemplary.
Going through a meticulous process of manufacturing, every block
reflects the sincere endeavor of Lego aimed at providing enjoyment
clubbed with an opportunity to hone a child’s creativity.
• It is also noteworthy that the company has not stopped evolving.
Even when the company was retracting from several projects, the
management considered it sane enough to further diversify its then
relatively new Bionicle range, which is based on Polynesian
mythology.
• Feedbacks channels have been put into operation in attempt to do
away with the problem of lack of public opinion in designing
products. Internet forums have been created where one can enter
suggestions for new designs, and these have been massively
successful as they have proven just the perfect channel for
feedback and implementation based on the same.
14. Summary: Life Cycle and the Changing Marketing Mix
As a product or brand moves through its life cycle, the company that markets it will shift its marketing-mix
strategies. Let’s see how the mix might be changed at each stage.
• Introduction
• At this stage, most companies invest in advertising to make consumers aware of a product. If it faces only
limited competition, it might use a skimming-pricing approach. Typically, because it will sell only a
relatively small quantity of the product, it will distribute through just a few channels. Because sales are
low while advertising and other costs are high, the company tends to lose money during this stage.
• Growth
• As the company focuses on building sales, which are increasing rapidly at this stage, its advertising costs
will go up. If competition appears, it may respond by lowering prices and distributing through multiple
distribution channels. With sales going up and costs going down, the product becomes more profitable.
• Maturity
• If a product survives the growth stage, it will probably remain in the maturity stage for a long time. Sales
still grow, though at a decreasing rate, and will eventually stabilize. Advertising will be used to differentiate
the product from competition. Price wars may occur, but profits will be good because sales volume will
remain high. As the product becomes outdated, the company may make changes in keeping with changing
consumer preferences.
• Decline
• In 2004, LEGO was in this stage: demand had declined as more innovative products absorbed the attention
of kids. Price competition had become more intense, and profits were harder to come by; in fact, in some
years, they had turned into losses. But, unlike most products that enter the decline stage, LEGO avoided its
likely demise by reinventing itself. Now, as the Danish phrase leg godt, from which the name LEGO was
coined, suggests, children all over the world can take out their LEGOs and “play-well.”
